In an article published three months ago, we explored debt recovery and the important considerations a creditor must keep in mind when attempting to recover a debt in Nigeria. It is not surprising that all these considerations revolve around taking legal action, as the Court has become the final option for debt recovery in the country.

If the creditor is a company or a corporate entity, there is an additional requirement that the company’s directors must consider fulfilling. This additional requirement, known as “corporate authority,” was recently highlighted by the Court of Appeal, FCT-Abuja, on the 28th of April, 2023, in the case of Hasal Microfinance Bank Limited v. BDA Limited & Anor.[1]

The Court of Appeal ruled that when a corporate creditor seeks to recover a debt through legal action, they must have a Board of Directors’ Resolution authorising the initiation of the legal proceedings. Without such authorisation, the action would be considered incompetent and subject to dismissal. Letters from individual company officers would not be sufficient unless they are later ratified by the Board, either before or during the legal action. This decision was based on the interpretation of sections 63(3) & (5), 65, and 66(1) of the repealed Companies and Allied Matters Act [CAMA or “the Act”], 1990.[2] In essence, a company must demonstrate that its Board of Directors has approved the legal action to have the standing to file a lawsuit; otherwise, the case may be thrown out of court.

Interestingly, this ruling appears to contradict a previous decision by the Supreme Court in 2002, in the case of Haston Nigeria Ltd v. ACB Plc.[3] In that case, the Supreme Court acknowledged the necessity of obtaining authority to sue on behalf of a corporate entity. However, it relied on sections 65, 244(1), and 279 of the CAMA 1990 to state that a director who is also the chairman and sole signatory of a company’s account had the express and implied authority to authorise legal action on behalf of the company. This authority was derived from the director’s duty to manage the company’s affairs and business, act in the company’s best interest to preserve its assets, and the express authority granted to the director by the board of directors to manage the company’s account.

It is important to emphasise that, according to established legal doctrines and principles, the decision of the Supreme Court holds the highest authority and prevails over other court decisions, including the Court of Appeal’s. This fact remains true, even when the Court of Appeal’s decision in question is the more recent. Moreover, considering the provisions of sections 87(5)(b), 89, 90(1), and (2) of the CAMA 2020, it can be confidently asserted that a lawsuit initiated by a corporate entity will meet the test of corporate authority if any of the following conditions are fulfilled, either before or during the legal proceedings, and appropriately presented along with the filed documents:

1. Resolution of the board of directors authorising the institution of the action.

2. Resolution of members in a general meeting authorising the institution of the action.

3. Authorising letter by the Managing Director.

4. Express or implied permission of the board of directors, members in a general meeting or the managing director under which an officer or agent of the company acts to authorise the institution of the action.[4]

5. Ratification of the acts of an officer or agent of the company by the board of directors, members in a general meeting or the managing director.